(Bloomberg) — A top economic adviser to Donald Trump said the Federal Reserve exercised bad judgment by cutting interest rates close to the presidential election.
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“If you were concerned about the integrity of the institution, you would not have done it,” said Scott Bessent, chief executive at the hedge fund Key Square Group, in an interview with Bloomberg News on Friday. “You especially would have not done a jumbo cut,” he said, referring to the Fed’s decision last month to lower rates by a half percentage point, a larger-than-usual move.
Fed Chair Jerome Powell and other central bank officials have described the interest-rate cut as aimed at shoring up a labor market that, while still broadly solid, has cooled this year. Policymakers penciled in another half point in cuts over the remainder of 2024, according to the median projection released in September.
Powell and other officials have repeatedly said they don’t take political considerations into account when setting policy, but rather focus on their assessment of what is best for the US economy. While Trump has said the cut was a “political maneuver,” Republican lawmakers have largely refrained from criticizing it.
“In reputation, everything is optics,” Bessent said, arguing the Fed could have afforded to wait to cut rates until after the election. “Tell me on what planet is it conceivable that waiting two months is make or break, versus the integrity of the institution.”
He also repeated his idea of nominating a new Fed chair well in advance of the expiration of Powell’s term as the central bank’s head in May 2026. Financial markets would then begin to pay attention to that so-called shadow Fed chair instead of Powell, according to Bessent, who previously explained the proposal to Barron’s.
The Fed declined to comment on the idea or Bessent’s criticisms of the September rate cute.
Bessent, who stressed he doesn’t speak on behalf of the Trump campaign, said the shadow chair could be nominated six months ahead of the end of Powell’s term as chair.
“You’ve identified the person. You know their history, their predilections,” he said.
Marc Giannoni, chief US economist at Barclays Capital and former research director at the Dallas Fed, was skeptical that a shadow chair, if not aligned with the rest of the interest-rate setting Federal Open Market Committee, could be expected to change the direction of policy. But they might disrupt markets somewhat, he said.
“Creating noise about who is in control and who might be in control later on might be enough to create turbulence in markets, create volatility,” he said. “How large it is is hard to assess at this point.”
Trump has previously said he would not reappoint Powell to another term as chair. Trump has frequently criticized Powell and said in August he felt strongly that the president should have a “say” on monetary policy. Such history has raised speculation that Trump, should he win a second term, would try to curb Powell’s authority and the Fed’s ability to set policy independently of the president.
Bessent, however, pushed back on that idea: “I know that he understands that central bank independence anchors long-term inflation expectations, which anchors long-term rates,” he said, referring to Trump.
–With assistance from Saleha Mohsin.
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